Spectral lag, which is defined as the difference in time of arrival of high and low energy photons, is a common feature in Gamma-ray Bursts (GRBs). Previous investigations have shown a correlation between this lag and the isotropic peak luminosity for long duration bursts. However, most of the previous investigations used lags extracted in the observer-frame only. In this work (based on a sample of 43 Swift long GRBs with known redshifts), we present an analysis of the lag-luminosity relation in the GRB source-frame. Our analysis indicates a higher degree of correlation -0.82+/-0.05 (chance probability of approx 5.5 X 10(exp -5) between the spectral lag and the isotropic peak luminosity, L(sub iso), with a best-fit power-law index of -1.2 +/- 0.2, such that L(sub iso) varies as lag(exp -1.2). In addition, there is an anti-correlation between the source-frame spectral lag and the source-frame peak energy of the burst spectrum, E(sub pk)(1 + z).